Retail trade remains elevated in 4Q22

• Retail turnover was stable on an annual basis in October, despite the 12.5% m-o-m increase (ABS). Price inflation and household income growth continued to buoy retail spending in 4Q22, and this is expected to continue until the latter half of 2023.
• Anecdotally, incentives are increasing despite rent levels remaining broadly stable. Demand remains high for F&B tenants. Banks are reducing their physical footprint as well as negotiating shorter leases and lower rent.

Minimal supply additions in 4Q22

• The supply pipeline in 4Q22 was subdued, delivering only 17,000 sqm of construction across four projects. The new supply mix was made up of CBD Prime (12%), Neighbourhood (48%) and Regional (41%).
• The 2023 supply outlook is moderate, with 79,000 sqm scheduled to complete, comprising primarily of new neighbourhood developments.

Rents and yields remain broadly stable

• Gross rents remain stable for all sub-sectors except for CBD. Despite the holiday period, the absence of pre-COVID-19 levels of tourists continues to place pressure on CBD rents, resulting in a rent decrease of 5% in the quarter and 12% over the past year.
• Yields were stable for all sub-sectors. Over the past twelve months, sub-regional and large format retail (LFR) assets showed no yield movement while regional, neighbourhood and CBD assets showed yield softening. Neighbourhood assets experienced the most significant y-o-y change of +27 basis points.

Outlook: Subdued trade turnover and investment performance in 2023

• Elevated retail spending is expected to slow by the middle of 2023 as interest rate increases start to impact spending decisions and consumers deplete savings accumulated from the lockdown period.
• Despite higher debt costs, retail investment is likely to remain resilient as buyers and vendor expectations narrow.